Financial Management


9 nov. 2013 (il y a 7 années et 11 mois)

263 vue(s)

Financial Management




Does financial management exist?

What would a business look like that had little or no financial

One way to find out more about something is to pretend a world in
which it didn’t exist …






Cash and Profit

You can pay a bill with cash but not with profit!

The business ’s cash is the amount of money (including money at the
bank) it has available to pay bills etc.

Profit is not so easy to understand

for instance it is surprisingly
common for businesses to fail because they don’t have enough cash
even though they are very profitable!

Profit is the left over amount once all expenses have been taken away
from income

if there is a plus figure you have a profit (otherwise you
have a loss)

Your project may make a profit (earn enough to cover costs plus a bit
on top)

but if you run out of cash your project will fail

This is why cashflow forecasts are so useful

they let you plan for
when you will have cash coming in and going out to make sure you
don’t run out (a profit & loss account shows profit

a cashflow shows

Cashflow and other financial problems

If a business

has a short
term cashflow problem, an arranged
overdraft may ease the symptoms

but overdrafts are expensive and
can be called in at any time

Also, the bank is likely to demand personal guarantees from
management team members (which means they become personally

If the business

has no realistic prospect of ever paying off its bills

It needs to seek advice urgently

If the business is a company limited by guarantee it may be
unlawful for it to carry on operating

If the business carries on regardless, management team members
could lose their limited liability status and be held personally
responsible for debts


A forecast revises the business ’s anticipated income and expenditure
by taking development into account which occurred since the budget
was drawn up

When examining forecasts, management team members should test
them and not merely take them at face value:

Are the assumptions on which the forecasts are based reasonable?

Do they need to be adjusted up or down?

Have all factors been taken into account?

What are the implications of any adjustments?

Finally, depending on how accurate the forecasts are, does the project
need to take steps to ensure they become more accurate?


A budget is a really useful planning tool for controlling costs

Essentially a budget forces you to allocate a specific amount of money
for each different type of expenditure (or ‘budget head’ as its
sometimes known)

for the year as a whole and also for each month
in the year

These allocations are target figures, differences between what was
projected and what happened in real life are called ‘variances’

Once variances have been spotted, the business may decide to do
something about them

perhaps to transfer money between budget
heads, or to cut costs elsewhere

Budgeting takes time and imposes a discipline

but you will be in

Budgets don’t have to be just about money

you can use the same
techniques to manage other things such as project outputs

Why budget?

Each year your business needs to draw up a budget

an estimate of
how much it expects to pay out and receive during the year

it needs
to do this because:

Realistic budgets and cashflows enable members of the
management team to use financial resources more effectively,
minimise problems, and exploit opportunities

Budgeting is a useful planning tool which helps identify potential
problems before they occur

Budgets can be used to monitor income and expenditure during
the year

Budgets require us to put a value on assets and resources needed
in the project

And finally, all funders and bankers require budgets and cashflows

Some budgeting terms

Direct costs

directly linked to level of activity; eg raw materials,
wages used for delivering a service or making a product (also called
variable costs)

Indirect costs

are not linked to level of activity; eg rent, rates,
insurance etc (also called fixed costs)


day running costs of the project


generally one
off expenditure on fixed assets

even point

the level of sales (service or product) required to
cover all costs (direct and indirect)

Balanced budget

where projected income equals projected


the difference (if any) between a projected figure and the
actual figure that came about

Financial management needs

exercise (1)

In two sub
groups, consider a scenario where you are a member of
either Grants Committee (A) or (B) of a well
resourced charity. Please
complete either Task A or B as directed:

Task for Grants Committee (A)

next year this committee will
have a lot more money to distribute. Can you come up with a
prioritised list of selection criteria for giving out funds.

Task for Grants Committee (B)

the committee has just
decided to approve a large funding application from the learners’
project (even though they were a bit worried about how sensibly
the money would be spent). Can you come up with a prioritised
list of conditions the project must meet in order to get the money.


the grants committees’ primary function is to see that funds are
spent well and not wasted

Financial management needs

exercise (2)

Then the two sub
groups can feed back to each other

Ask each sub
group to feedback completely before moving on

if you can confidently use phrases such as ‘capital receipts’ or
‘accruals’ please be aware that others may find such jargon off

Appoint firm but fair timekeepers

Encourage positive language and attitudes

Discourage possessive feelings amongst learners towards ‘their’

Finally, in the last five minutes try to create an agreed outline list of
the business’s financial management needs

Sweeties money maze

exercise (1)

In two sub
groups, consider this scenario:

You are new on the management committee of Sweeties Pre
School & Training Centre, which provides places for over 50
children as well as a wide range of adult training. You employ 14
staff and get funding from a variety of sources including a new
large package of grants from government.

Sweeties has been running well for several years. However, the
project director has informed the committee that the new money
that should be coming from government has been coming in late.
In fact you have just learned that you haven’t received any
payments for the last two quarters and that there is some kind of
problem brewing. The finance committee has asked for the
management committee to get involved and a special meeting has
been called to look at the issues and take.

As you are still new to Sweeties, the project director has asked if
you want any specific financial information before the meeting
takes place.

Sweeties money maze

exercise (2)

In sub
groups, try to answer these five key questions:

What do you need to know?

What do you think you should ask for?

What will help you understand the problems and make good

What financial/legal responsibilities must you bear in mind?

What steps could you take so that this doesn’t happen again?

What steps could you take so that this doesn’t happen again?

Don’t spend too much time trying to figure out the particular problem
at Sweeties

you are not given enough information to know what it is